Author: Nadzeya Laurentsyeva Title: Monetary Union of Belarus and Russia - Analysis of Possible Costs for the Belarusian Economy Abstract The thesis analyses alignment of the Belarusian and Russian economies with the aim to infer on costs of the possible monetary union for Belarus. Having estimated a structural vector autoregression model with long-run restrictions, we conclude that the economies have shared common supply and external demand shocks, but other temporary fluctuations have been, in large, asymmetric. Structural discrepancies (as proven by the qualitative analysis) and differences in the monetary policy foci and transmission (as illustrated by the estimation results of Taylor rules and a monetary vector autoregression model) could account for increasing misalignment since 2010. In terms of the welfare costs for Belarus (evaluated with a New Keynesian dynamic stochastic general equilibrium model), the monetary union can be considered preferable to the current monetary policy of the National bank of the Republic of Belarus, while being inferior to the hypothetical inflation targeting regime. The welfare gap between the two arrangements reduces, if stronger domestic price flexibility and higher synchronization of productivity shocks can be assumed.

The Eurozone has been the object of much controversy recently. Both on the member-state and on the EU level, policies are being made to cope with the many problems of the Eurozone. In this paper we state that academic economics is often unable to give the right advice for policymakers in the case of the Eurozone crisis, because this is a new situation where academics are disagreeing fundamentally about the best remedy for the problem. We come to this conclusion by first showing how one of the most prominent theories about monetary unions (the Optimum Currency Area theory) is unable to give any good advice to policymakers. After that we make a country-comparitive study between the ten new EU members in Central and Eastern Europe that joined in 2004 and 2007, which shows us that these countries respond fundamentally different on the Eurocrisis and that these reactions are more based on political and public support and national economic performance than on formal academic economics.

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This thesis is intended to consider whether the South American members of the trade bloc, the Pacific Alliance, namely Chile, Colombia, Peru, form an optimum currency area (OCA). An in-depth review into the progression of OCA theory is done to formulate a proper econometric analysis. An empirical investigation is conducted by using main macroeconomic indicators from the time period 2001 to the third quarter of 2014 to examine if the aforementioned countries are within the definition of an OCA. An ordinary least squares regression is done on three major economic indicators to test the causes of the deviation from one another. Evidence suggests the group is currently not an OCA and extensive integration efforts would be needed before the group is within the bounds of forming an OCA.

This thesis investigates the cause and implications of the divergent inflationrates of the EMU-12 countries between the years 1998 and 2010. The EMUand the euro are put into a context with the classic theory of Optimum CurrencyArea, where the economic benefits and cost of joining a monetary unionis reviewed. The inflation divergence in the euro area is then described and investigated.Empirically, a Phillips Curve model is constructed in order to determineif the EMU-12 nations’ inflation rates are equally sensitive to changesin unemployment as the EMU average. This is done using a Panel Least Squareestimation for the EMU-12. Each nation is then tested separately against theEMU average. The result provides evidence that the EMU-12 nations’ inflationrates are not equally sensitive to changes in unemployment as the EMU average.The result is negative for the EMU-12 in an Optimum Currency Area context.Given the results, the EMU-12 cannot be considered to be an OptimumCurrency Area, at least not yet.

<p>This bachelor thesis examines the convergence properties of inflation rates of the Euro-pean Monetary Union (EMU) countries over the period 1992 to 2007. The period can be naturally split into two periods, according to the Maastricht Treaty and the introduction of the Euro. Since countries were striving to meet the Maastricht inflation criterion for 1997 we will analyse inflation behaviour of the pre-Euro period (1992 to 1997) and post-Euro period (1998 to 2007), in order to see whether each country’s inflation rates have con-verged to the calculated mean of the sample. To analyse the issue we used CPI inflation rate data from IMF Statistical Database over the period 1992 to 2007.</p><p>We study convergence by means of ADF unit-root tests, Engle-Granger cointegration tests and Johansen cointegration tests. These are complemented with descriptive statistics that measure dispersion of inflation rates within the EMU.</p><p>The conclusion to the research problem can be summaries as follows: Our analysis pre-sents clear evidence of reduction in inflation rate dispersion for the period 1992 to 1997, indicating that the Maastricht Treaty had a major impact on the convergence of inflation rates within the EMU for that period. However, we found that only two countries, Austria and Portugal, had a cointegration relationship with the average rate of inflation of the other countries in the sample. For the period 1998 to 2007, the descriptive statistics indicated that the introduction of the Euro resulted in a divergence of inflation rates within the EMU. Those results were further strengthened by the fact that no cointegration relation-ship was found for that period.</p>

This bachelor thesis examines the convergence properties of inflation rates of the Euro-pean Monetary Union (EMU) countries over the period 1992 to 2007. The period can be naturally split into two periods, according to the Maastricht Treaty and the introduction of the Euro. Since countries were striving to meet the Maastricht inflation criterion for 1997 we will analyse inflation behaviour of the pre-Euro period (1992 to 1997) and post-Euro period (1998 to 2007), in order to see whether each country’s inflation rates have con-verged to the calculated mean of the sample. To analyse the issue we used CPI inflation rate data from IMF Statistical Database over the period 1992 to 2007. We study convergence by means of ADF unit-root tests, Engle-Granger cointegration tests and Johansen cointegration tests. These are complemented with descriptive statistics that measure dispersion of inflation rates within the EMU. The conclusion to the research problem can be summaries as follows: Our analysis pre-sents clear evidence of reduction in inflation rate dispersion for the period 1992 to 1997, indicating that the Maastricht Treaty had a major impact on the convergence of inflation rates within the EMU for that period. However, we found that only two countries, Austria and Portugal, had a cointegration relationship with the average rate of inflation of the other countries in the sample. For the period 1998 to 2007, the descriptive statistics indicated that the introduction of the Euro resulted in a divergence of inflation rates within the EMU. Those results were further strengthened by the fact that no cointegration relation-ship was found for that period.

The diploma thesis is aimed to apply the theoretical concept of optimum currency areas, i.e. probably the most comprehensive approach to analyze the suitability of establishing a currency area, to the real and currently difficulties solving environment of EMU states. The first, theoretical-methodological part shows the development of the OCA theory, as founded by Robert A. Mundell and expanded upon by further contributors and critics thereafter. This part focuses especially on defining the optimality criteria, which are then analyzed in the empirical-analytical section. In order to assess the level of optimality, which the euro area members have reached during the common currency existence period, concrete and empirical data are analyzed - data, showing the previous development of the selected indicators, describing the criteria fulfilling. In the final part of the thesis, the author considers the overall optimality rate of euro area and points out its consequences for the Czech Republic, as a candidate country. Furthermore, the entry-timing question is discussed as well, when finished by a two possible scenarios of our accession to EMU. In relation to this issue, the author also discusses the relevancy to assess the readiness for entering the euro area according to the parameters of Maastricht criteria.

Diploma thesis, European Monetary Union, its Development and the Future, deals with the reasons, which ultimately led to the foundation of the later European Union and afterwards the European Monetary Union. The journey, which leads up to the present where we are now, lasted for several decades. The experience with the two World Wars on the European territory was the sufficient reason why the European countries embarked on this common journey. In the first part this thesis offers the insight into the past. In short, the most important historical milestones on this road, leading towards the European, respectively the European Monetary Union, are suggested here. The second part of this thesis focuses on current problems of the European Monetary Union. The individual European macroeconomic indicators are compared with the results obtained overseas, particularly in the U.S.A. and Japan. Ultimately, it appears that the EU in comparison especially with the U.S.A. is lagging behind in some indicators. Another part of the thesis is dedicated to the optimum currency area. Is therefore the European Monetary Union the optimum currency area? A few indicators give again the answer to this question. The resulting values of the indicators show that the European Monetary Union is not the optimum currency area today. The reasons can be found particularly in the political than the economic area. Therefore, there is lots of work waiting for the European politicians, officials, but also ordinary citizens, and it will be only up to them, which way the European Union sets out.

This dissertation spans topics related to global trade, oil prices, optimum currency areas, the eurozone, monetary independence, capital controls and the international monetary policy trilemma. It consists of four chapters and three essays. Chapter one provides a brief summary of all three essays. Chapter two investigates the impact of oil prices on global trade. It is concluded that when oil prices increase, countries start trading relatively more with their neighbors. As an application this chapter provides a new estimate of the eurozone effect on trade. Chapter three continues to study the eurozone and asks whether it is an optimum currency area using the member countries’ desired monetary policies. It is concluded that Greece, Spain, and Ireland have desired policies that are the least compatible with the common euro policy and are therefore the least likely to have formed an optimum currency area with the euro. Chapter four provides a new methodology in testing the international trilemma hypothesis. It is concluded that the trilemma holds in the context of the Asian countries.